With assessment collections continuing to be problem for many community associations in Maryland, manager and board members alike are exploring alternative methods for collecting delinquent assessments. Here is a summary of the general process and timetable for the lien foreclosure procedure in Maryland.
The first step is to ensure that the association’s lien filing(s) against the property at issue are updated through the current fiscal year. After that, then order a title report and contact the mortgage lender to obtain payoff information. The mortgage claim is superior to that of the association, and the full amount owed to the lender generally must be paid when the association sells a unit at foreclosure. Therefore, we must ascertain the amount necessary to pay the lender in full. With this information, the board can estimate whether there is enough equity in the property to justify a foreclosure (i.e., whether the sale proceeds will be enough to cover the mortgage, the Association’s lien, and the costs of the foreclosure). This preliminary analysis is critical to perform in order to assess the likelihood of having the property sold at the foreclosure auction. For example, if the analysis reveals that the amount owed on the mortgage is greater than the appraised value of the property, a prospective buyer will almost certainly be deterred from purchasing the property. This is because the property will be sold subject to the mortgage if the amounts of the sale are not sufficient to pay the mortgage off. In this instance, foreclosure would not be advisable.
If the board determines to move forward with foreclosure, we will then draft and send a Notice of Intent to Foreclose. After the Notice is sent, a 45-day notice period must expire before any further action is taken. The Notice explains the owner’s rights with respect to foreclosure of the property and provides a timeframe in which the owner must cure the delinquency in order to avoid foreclosure. A Loss Mitigation application must also accompany the Notice of Intent to Foreclose. This application offers the owner an opportunity to explain the circumstances surrounding the default in payment, and, if the homeowner qualifies, initiates the mediation process.
Under newly revised laws, an owner must be given an opportunity to mediate in certain circumstances. If mediation is not required, the association can immediately move forward with filing a Petition to Foreclose with the Circuit Court for the County where the property is located. The Petition must be served on the homeowner. An Order is typically received within 8 to 10 weeks of filing the Petition. If mediation is required, there will be a delay in the entry of an Order until the mediation process has concluded. Unfortunately, the new laws surrounding loss mitigation and mediation are not well settled and, as a result, receive dissimilar treatment in different counties. Accordingly, there is no set timetable for the length of the mediation process.
Once an Order authorizing foreclosure is received, a bond for the Trustee appointed by the Court must be obtained and the sale scheduled with an auctioneer. The sale must then be advertised for three consecutive weeks in a local newspaper. Notice of the sale also must be given in writing to the delinquent owner and to other lien holders. After these steps have been completed, the actual foreclosure auction is held on the front steps of the Circuit Courthouse.
At the conclusion of the auction, a report of the sale must be made to the Court, and an advertisement of the outcome of the sale must be run in the newspaper. After the advertisement runs, if no objections are filed with the Court, the sale will be ratified. This process takes approximately 3 months.
At the same time that the report of sale is being advertised, a closing is held at a settlement company to transfer title to the successful bidder at the foreclosure sale. An accounting is filed with the Court, showing how the proceeds of the sale were applied. The ratification cannot take place until this accounting has been filed with the Court.
Please note that while law firms initiate many foreclosures, most cases do not make it through the entire process detailed above. In some cases, the owner files a petition in bankruptcy, which stops the foreclosure process. In many other cases, the owner pays the Association all amounts due, including costs and attorney’s fees. In addition, the mortgage holder may come in and satisfy the association’s lien in order to preserve its interest in the property.